Auto Sales Doesn’t Rev Up Markets

Good Morning Traders,
As of this writing 4 AM EST, heres what we see:US Dollar: Dec. USD is Up at 96.045.Energies: November Crude is Down at 48.40.Financials: The Dec 30 year bond is Down 1 tick and trading at 168.01.Indices: The December S&P 500 emini ES contract is 15 ticks higher and trading at 2157.00.Gold: The October gold contract is trading Down at 1310.50. Gold is 22 ticks lower than its close.Initial Conclusion

This is not a correlated market. The dollar is Up+ and crude is Down- which is normal and the 30 year bond is trading Down. The Financials should always correlate with the US dollar such that if the dollar is lower then bonds should follow and vice-versa. The indices are Up and Crude is trading Down which is correlated. Gold is trading Down which is correlated with the US dollar trading Up. I tend to believe that Gold has an inverse relationship with the US Dollar as when the US Dollar is down, Gold tends to rise in value and vice-versa. Think of it as a seesaw, when one is up the other should be down. I point this out to you to make you aware that when we dont have a correlated market, it means something is wrong. As traders you need to be aware of this and proceed with your eyes wide open.
All of Asia traded higher. As of this writing all of Europe is trading higher.

Possible Challenges To Traders Today

 No major economic news.
 Lack of major economic news.

Treasuries

Weve elected to switch gears a bit and show correlation between the 30 year bond (ZB) and The YM futures contract. The YM contract is the DJIA and the purpose is to show reverse correlation between the two instruments. Remember its liken to a seesaw, when up goes up the other should go down and vice versa.
Yesterday the ZB made its move at around 10 AM EST at around the time the economic news was reported. The ZB hit a high at around that time and the YM hit a low. If you look at the charts below ZB gave a signal at around 10 AM EST and the YM was moving higher at the same time. Look at the charts below and youll see a pattern for both assets. ZB hit a high at around 10 AM EST and the YM hit a low. These charts represent the latest version of Trend Following Trades and Ive changed the timeframe to a 30 minute chart to display better. This represented a shorting opportunity on the 30 year bond, as a trader you could have netted about 30 plus ticks per contract on this trade. Each tick is worth $31.25. We added a Donchian Channel to the charts to show the signals more clearly.Charts Courtesy of Trend Following Trades built on a NinjaTrader platformClick on an image to enlarge it. ZB  December, 2016  10/3/16 YM- December, 2016  10/3/16

Bias

Yesterday we gave the markets a neutral bias as all the instruments we track were pointed higher and that tells us that there is no correlation hence the neutral bias which means the markets could go in any direction. The Dow dropped 54 points and the other indices lost ground as well. Today we arent dealing with a correlated market and our bias is to the upside.Could this change? Of Course. Remember anything can happen in a volatile market.Commentary

So yesterday morning were looking at the markets and for some reason something just didnt seem right. The USD was up, crude was up, the bonds were up as well as Gold. The problem? The indices were also trading up and this shows no direction. If everything is either completely up or down the markets have no direction, hence the neutral bias. Although Auto Sales gained for the month, it wasnt enough to drive the markets higher as the Dow and other indices lost ground yesterday. Today we have no economic news to speak of so the markets will be left up to its own devices today
Just so you understand, Market Correlation is Market Direction. It attempts to determine the market direction for that day and it does so by using a unique set of tools. In fact TradersLog published an article on this subject that can be viewed at:http://www.traderslog.com/market-cor…ket-direction/

Many of my readers have been asking me to spell out the rules of Market Correlation. Recently Futures Magazine has elected to print a story on the subject matter and I must say Im proud of the fact that they did as Im Author of that article. I encourage all viewers to read that piece as it spells out the rules of market correlation and provides charts that show how it works in action. The article is entitled How to Exploit and Profit from Market Correlation and can be viewed at:View article on Futures Mag
As a follow up to the first article on Market Correlation, Ive produced a second segment on this subject matter and Futures Magazine has elected to publish it. It can be viewed at:View article on Futures Mag
Many subscribers have asked what is the best time of day to trade? A recent article published by Futures Magazine may shed some light on the subject:http://www.futuresmag.com/2015/01/15…orning-trading

As readers are probably aware I dont trade equities. While were on this discussion, lets define what is meant by a good earnings report. A company must exceed their prior quarters earnings per share and must provide excellent forward guidance. Any falloff between earning per share or forward guidance will not bode well for the companys shares. This is one of the reasons I dont trade equities but prefer futures. There is no earnings reports with futures and we dont have to be concerned about lawsuits, scandals, malfeasance, etc.

Anytime the market isnt correlated its giving you a clue that something isnt right and you should proceed with caution. Today our bias is to the upside. Could this change? Of course. In a volatile market anything can happen. Well have to monitor and see.

As I write this the crude markets are lower and the futures are trading higher. This is normal. Crude and the markets are now reverse correlated such that when the markets are rising, crude drops and vice-versa. Yesterday November Crude dropped to a low of $47.86 a barrel. It would appear at the present time that crude has support at $47.79 a barrel and resistance at $49.18. This could change. Well have to monitor and see. Remember that crude is the only commodity that is reflected immediately at the gas pump. On Friday, December 4th OPEC reiterated their stance not to cut production. OPEC appears to be adamant about keeping production where it is as they believe that oil will rebound. What they havent figured out yet is that the more countries like Canada and the US produce their own crude (by whatever means) the more crude prices will fall.
Last May OPEC reiterated its stance not to cut production. The problem? Iran refused to cut production (as they are recently recovering from sanctions levied against them) and therefore no agreement was made. Could this change in the future? Of course, anything can happen in a volatile market.
If trading crude today consider doing so after 10 AM EST when the markets gives us better direction.

Future Challenges

So it seems as though the Donald finally released his tax returns after being hammered on this issue last week during the debate. It also appears as though the Donald took a 900 million dollar tax loss which means he deducted it and claims that he knows the tax laws better than anyone therefore hes the only one who can fix them. Thats like saying Ive been to jail, so Im the only one who can fix jails. The question is does the American people want someone who claims a nearly billion dollar tax loss as their president? Only time will tell .
Tonight we have the Vice President debate in which there will only be one. I cant answer for these two as I must profess I know little about either one of them. Well find out soon enough

Crude Oil Is Trading Lower

Crude oil is trading lower and the markets are higher. This is normal. Crude typically makes 3 major moves (long or short) during the course of any trading day: around 9 AM EST, 11 AM EST and 2 PM EST when the crude market closes. If crude makes major moves around those time frames, then this would suggest normal trending, if not it would suggest that something is not quite right. As always watch and monitor your order flow as anything can happen in this market. This is why monitoring order flow in todays market is crucial. We as traders are faced with numerous challenges that we didnt have a few short years ago. High Frequency Trading is one of them. Im not an advocate of scalping however in a market as volatile as this scalping is an alternative to trend trading.

Nick Mastrandrea is the author of Market Tea Leaves. Market Tea Leaves is a daily newsletter that is dedicated to your trading success. We teach and discuss market correlation. Market Tea Leaves is published daily, pre-market in the United States and can be viewed at www.markettealeaves.com. Interested in Market Correlation? Want to learn more? Signup and receive Market Tea Leaves each day prior to market open. As a subscriber, youll also receive our daily Market Bias video that is only available to subscribers.